Poverty and Human Development Report 2009 - UNDP in Tanzania

Chapter I CLUSter 1
Box 2: The Impact of the Global Financial Crisis on Tanzania’s Economy
the banking system in tanzania has weathered the global financial crisis, but other aspects of the
economy have been clearly affected. fdi flows, prices of some export commodities, and earnings from
tourism have fallen. at the same time, there have been compensatory increases in official aid receipts,
and tanzania’s already low level of remittances has hardly changed.
that the banking system was not immediately threatened by the crisis reflects the still limited nature of
its cross-border linkages. financial sector reforms have been pursued over the past decade, and foreign
financial institutions have entered the country and private external creditors have emerged. nonetheless,
the breadth, diversification and competitiveness of tanzania’s’ financial system remain shallow. foreign
assets in the commercial bank system account for only about 11% of total commercial bank assets.
commercial banks in tanzania do not operate as branches of parent banks abroad but as independent
subsidiaries. they have a limited amount of foreign borrowing and none of them holds securities of
international banks affected by the crisis. as a consequence, the direct financial transmission of the
global crisis appears to have been relatively limited. Key indicators, such as capital adequacy, liquidity,
the balance between loans and deposits, the inter-bank payment and settlement system, the ratio of
non-performing loans to total loans and returns to capital, all reflect financial sector soundness.
nevertheless, the impact of the global crisis was felt on several other fronts. there was a slowdown in
private capital flows in the form of fdi which will affect the overall rate of investment in the economy. the
credit squeeze forced some investors to postpone or shelve investment projects, for example, the Usd
3.5 billion aluminum smelting plant in Mtwara, and the re-scheduling of Usd 165 million project in nickel
mining and extraction at Kabanga in Kagera region. other delayed projects include: the establishment
of an inland cargo depot to de-congest the dar es salaam port by ndc and export trading company;
the revival of the Kilimanjaro Machine tools company; Mtwara woodchip Project by oji Paper co. ltd
of Japan; the construction of a 300Mw natural gas power plant by artumas and barrick gold as well
as a transmission line from Mnazi bay to Kibaha; and construction of a cement factory at Mtwara by
dangote group of nigeria.
but the scale of the slide in foreign investment should not be overstated. its impact is expected to
be muted because of the concentration of fdi in the natural resources sector, where new investment
may be delayed but current projects are likely to continue. the losses associated with withdrawing
from natural resource projects prior to their completion, given the sizeable up-front capital investment
required, reduce the likelihood of fdi withdrawal.
on the trade front, many commodity prices fell which consequently hurt exporters. the global economy
is expected to shrink 0.4% in 2009. economic recession and job losses in major industrial countries
reduced the purchasing power of consumers, dampening demand for imported goods. the demand
and prices of some agricultural exports (including cotton, coffee, cloves, cashew nuts and horticulture
products) declined following the decline in incomes of major trading partners.
cotton prices plunged from Usd 0.82 per pound in March 2008 to Usd 0.45 per pound in March 2009.
the price of coffee (arabica) went down from Usd 158 per 50kg bag in august 2008 to Usd 104 per
50kg bag in december 2008. the price of sisal also went down from Usd 1,000 per ton (f.o.b) in March
2008 to Usd 750-850 per ton (f.o.b) in March 2009.
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